SME Loan Growth Floor Set, Bringing Fresh Policy Support to Packaging and Printing Financing

In China’s packaging and printing sector, small and medium-sized enterprises are widely dispersed, and as margins across the industry continue to narrow, working capital has become a common headache. Financing is one solution, yet banks have been reluctant to lend when the industry outlook is weak. Recently, the State Council issued the Implementation Opinions of the General Office of the State Council on Financial Support for the Development of Small and Micro Enterprises (the Opinions), setting a lower limit for loans to micro and small businesses.

This follows earlier policy steps: the State Council temporarily exempted 6 million small and micro enterprises from VAT and business tax, and the National Development and Reform Commission released eleven guiding opinions on financing for such firms. On the 12th, the State Council issued the Opinions, stating that, on the premise that risks remain generally controllable, loan growth for small and micro enterprises must be no lower than the average growth of all loans, and the increment must be no lower than that of the same period last year.

The Opinions call for expanding financing increments for small and micro enterprises while revitalizing existing stock, and for increasing their share of new credit. The assessment of the “two no less than” requirements will be further refined, with regular reviews and monthly reporting on banking financial institutions’ small and micro enterprise loan ratio, loan coverage, service coverage and application approval rate.

In practice, difficulty in providing collateral and guarantees is a key reason why small and micro enterprises struggle to obtain financing. A report on financial needs and satisfaction among small and micro enterprises, previously released by the China Association of Individual Workers and Private Enterprises, showed that although these firms view banks and other financial institutions as financing channels, most say borrowing from banks—especially state-owned commercial banks—remains relatively difficult. Surveyed companies cited both internal factors, such as weak performance, lack of assets that can be mortgaged or pledged, difficulty meeting bank guarantee conditions and unfamiliarity with loan procedures, and bank-side factors, including excessively high credit access requirements related to asset scale and credit rating, a lack of credit products tailored to small and micro enterprises and unreasonably designed business processes.

In response, the Opinions stress the need to establish and improve a financing guarantee system mainly serving small and micro enterprises. Local people’s governments should take equity stakes in and hold controlling interests in some guarantee companies, government-led re-guarantee companies should be set up at the province (autonomous region, municipality) level, and a credit risk compensation fund for small and micro enterprises should be created.

The State Council’s Opinions signal that local government guarantees for small and micro enterprise financing will soon move into substantive action. A person in charge at a state-owned bank said directly that if local governments can hold stakes in and control guarantee companies and provide more guarantees for small and micro enterprises, banks will be more willing to lend.

Meanwhile, Jing Linbo, vice president of the National Academy of Economic Strategy at the Chinese Academy of Social Sciences, previously suggested clarifying the financial entities that serve small and micro enterprises and encouraging financial services from private banks and joint-stock banks. Banks should segment the market, innovate credit products aimed at small and micro enterprises and build a professional team to serve them, he suggested.

The Opinions also set out multiple measures to support financing for small and micro enterprises, including accelerating the enrichment and innovation of financial service methods for these firms, strengthening credit enhancement and information services, actively developing small financial institutions, vigorously expanding direct financing channels, effectively reducing financing costs and increasing policy support for financial services. It specifically notes that financial access standards on the ChiNext market for innovative and growth-oriented enterprises should be appropriately relaxed, refinancing for listed small and micro enterprises should be launched as soon as possible, the National Equities Exchange and Quotations system should be improved, product innovation should be intensified and more financing varieties suitable for small and micro enterprises should be added.

Source: China Packaging Network (pack.cn); original link: http://news.pack.cn/show-361878.html